Quantum Profit Management

1. Quantum Profit Management presented byMerrifield ConsultingWayPoint Analytics RR

2. Introductions • Bruce Merrifield • Corporate CEO • performance strategist • distribution turnaround specialist in 150+ channels • Randy MacLean • Corporate CEO • performance analyst • consulting and analysis for Fortune 100 RR

3. What we’re covering today Purpose RR

4. What We’ll Cover RR

5. Yes Virginia, there is a Santa Claus! New opportunities! RR

6. Realities • Can’t sell your way out • Yesterday’s tactics aren’t working • “Try harder” is not a solution • You aren’t different if you’re doing the same things • Need new metrics to manage transfomationally RR

7. Unique Time in History • Dawning of a New Age • “Great” Recessions = Great Opportunity • occur once in a generation • force lean and optimal operation • clear out weak competitors & capacity • opportunity for “virtual acquisitions” • recovery brings high margins and growth • rewards courage and boldness RR

8. New Technologies • Technological advances bring paradigm shifts • once in a generation • computing horsepower brings new capabilities • Revenue  Gross Profit  Granular Net Profit • early adopters get competitive advantage(others are slow to catch on) RR

9. the new paradigm Quantum Profit Management RR

10. QPM: defined • Quantum Profit Management • “quantum” – from physics – the smallest indivisible unit of matter • to manage by breaking the business down into segments and bringing each to profitability • ensuring every segment has a profitable service model • engage the whole organization in QPM process RB

11. QPM Stages (Together) • “Renew the Core” (today) • 5 + 15 + 1 = 21% customers  250% profits • re-think sales force + small customers/orders • Sustain and Extend Premium Profits • engagement #s  service #s  profits • at every branch! (?) • Adapt and Proact with Environment • whale program complexity; supply-chain shifts; • side-step economies of scale; infinite bandwidth BR

12. QPM Principles • You're making more money than you know. • Measure and evaluate at the quantum level. • Manage on net profit. • Manage the deltas. • Financial averages mask what's really going on. • Understand and manage service models. • Identify and stop non-strategic cross-subsidies. • Synchronize goals & incentives. RR

13. Cost-to-Serve: defined • Cost-to-Serve (CTS) • everything on the P&L between GP and Net • total cost to deliver goods & services to clients • GP – CTS = Net Profit (de-averaged) • need CTS on granular business (NO averages) • Infuse your organization with CTS thinking • train everyone to be CTS-conscious • look for CTS improvements in everything (recognition incentives) • always include CTS in process planning RB

14. what you really need to know KEY principles BB

15. Customer Profitability Ranking Report • customer selection is key to top performance • instantly shows priority areas for action • requires accurate CTS / costing • charting technique: whale curve BB

16. Customer Profitability Ranking (screen from WayPoint Analytics) BR

17. You’re Making More Than You Know penetrate transform (screen from WayPoint Analytics) RBB

18. Make Money on Everything You Do • Segment the business • Analyze closely using Net / PBIT • CTS must be less than GP • Have (different, appropriate & profitable ) Service Models for every segment BR

19. Gross Margin (%) is a Poor Metric (screen from WayPoint Analytics) RR

20. Gross Margin is a PoorMetric • Net profit rarely correlates to GP% • GP% doesn’t account for CTS variance • GP incentives drive dysfunction: • GP% mirage • management vs sales reps • work against your true objectives • consume management time and energy • Drive poor decision-making RR

21. Manage on Net Profit • Direct link to real profits • Direct link to positive cash flow • Pay down debt • Produces return for shareholders • Top management incentives • Synchronize sales incentives • deltas are powerful tools for improvement • It’s all that matters RR

22. Financial Averages Mask Reality (screen from WayPoint Analytics) RB

23. Manage The Extremes Core Business BR

24. Customer Profitability Ranking (screen from WayPoint Analytics) RB

25. Manage on the 5 x 5 (screen from WayPoint Analytics) BR

26. Inculcate CTS Thinking • Measure and monitor CTS metrics • Always include CTS in process planning • Train everyone to be CTS-conscious • Establish CTS budgets for segment service models • Look for CTS improvements in everything (recognition incentives) • Make CTS a component of sales incentives RB

27. CTS vs TPC • CTS – Cost-to-Serve • TPC – Total Procurement Cost TPC • warehousing • processing • delivery CTS • uptime • on time • first time BB

28. Identify Cross-Subsidies Restaurant 46 clients 379 SKUs $199,846 Net $ Fast Food129 clients 379 SKUs ($233,974) Net BB

29. Use Profitable Service Models • Transaction costs matter • “Full service for everyone” is a loser • Measure customer profitability: • protect & service big winners • move small/no profit customers to better service model • transform big losers • Use territory realignment to match reps and accounts for max performance & to protect best reps BB

30. QPM Plays Sales • Manage on the 5 x 5 • Delta PBIT Incentives • “More to the Core” • Customer Deltas • Cross-Sell Best Items • Optimize Territories • “Lead to Gold” • “Wholetail” strategy Customer Service • Big 8 Service Metrics • People Engagement Metrics Product / Vendor Mgmt • Product consolidation • Vendor consolidation • Special-order business • Popular small picks BB

31. With QPM, You Can… • Manage by Granular Net Profit • Understand your CTS • Understand and Manage Cross-Subsidies • Tune Service Metrics for Each Niche • Use Profitable Service Models • Boost Morale, Customer Satisfaction, Profits“People, Service, Profits” – FedEx motto BR

32. ...recapping now… Wrap-Up RR

33. QPM Principles • You're making more money than you know. • Measure and evaluate at the quantum level. • Manage on net profit. • Manage the deltas. • Financial averages mask what's really going on. • Understand and manage service models. • Identify and stop non-strategic cross-subsidies. • Synchronize goals & incentives. RR

34. Do’s & Don’ts Don’t: • manage with GP % • be fooled by averages • let cross-subsidies steal your profits • let personnel ignore CTS • perpetuate dysfunctional incentives Do: • manage on Net Profit • get granular data • fit profitable service models to segments • infuse CTS everywhere • tie commissions and bonuses to Net profit RR

35. About WayPoint Analytics • Designed specifically for QPM • Best Cost-to-Serve (CTS) & Net Profit analysis tool available • Online, web-based subscription service • no hardware or software to buy • secure • no charge for updates or enhancements • Fast and inexpensive to implement • Strategy assistance from us RR

36. Q & A Q: Do I have to fire some customers? Q: What will my important vendors think? Q: What will the sales team Think? Q: How do I know what to do? Q: What’s WayPoint cost? Q: How long does it take? Q: Can I get a demo for my management team? Q: Where can I get more info? RR

37. Next Steps • Discuss QPM with your executive team • Visit the QPM website www.quantumprofitmanagement.com • Get QPM recipes at www.merrifield.com • Get Bruce’s Course on DVD(list $995; webinar $300; FREE with WayPoint) • Arrange a detailed WayPoint review for your executive team (see WayPoint live in one hour) • Implement QPM at your company RR

38. Follow-Up • Follow-up E-mail: • webinar slide deck • Bruce’s “What is QPM?” article • links to Merrifield, WayPoint & QPM websites • order info for Bruce’s DVD course • information on WayPoint Analytics • QPM newsletter RR